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Europe Fines Microsoft $356 Million

BRUSSELS, July 12 — The European Commission fined Microsoft 280.5 million euros ($356 million) today for failing to comply with a 2004 antitrust ruling. But the commission also signaled that the two-year cat-and-mouse game between regulators and Microsoft may be coming to an end.

Neelie Kroes, the European competition commissioner, went so far as to praise recent efforts by Microsoft to comply with an order to reveal certain technical details about its Windows operating system to rival software companies, and said she no longer believed the company was playing for time.

“They are making constructive efforts now,” Ms. Kroes said at a news conference today. “It’s a shame they didn’t do so two years ago.”

Even so, the commission chastised Microsoft for being the first company to incur punishment for failing to obey one of its antitrust decisions. To encourage Microsoft not to delay compliance in the future, the commission decided to increase the daily fines it imposed.

The 280.5 million-euro fine was calculated at 1.5 million euros ($1.9 million) a day, running from Dec. 16, 2005 to June 20, 2006, the day when the commission said Microsoft appeared to start to seriously comply with the ruling.

If the documents that Microsoft still must submit fail to satisfy the Commission, the daily fine will be raised to 3 million euros ($3.8 million).

Today’s fine follows a much larger one of 497 milion euros ($745 million), which was levied against Microsoft in the original antitrust ruling in 2004. Microsoft has appealed that ruling at the European Court of First Instance in Luxembourg.

Microsoft said today that it would appeal the new fine as well, arguing that the 2004 order to reveal technical details about Windows was not clear enough. The commission “has to be specific and concrete about what it wants someone to do,” said Brad Smith, Microsoft’s chief lawyer, in a conference call with journalists today. “The decision did not do that,” he said.

“We will ask the European courts to determine whether our compliance efforts have been sufficient, and whether the Commission’s unprecedented fine is justified,” Mr. Smith added.

Microsoft’s allies were quick to rally around the firm. “Microsoft has provided more than enough information and support to create interoperability,”’ said Jonathan Zuck, president of the Association for Competitive Technology, a trade group, referring to the commission’s requirement that competitors be allowed to design software that works with Windows as well as Microsoft’s own products do. “But the commission and Microsoft’s competitors really want the ability to clone Microsoft software,” Mr. Zuck said.

Microsoft has said from the beginning that it would honor the commission’s ruling. But Ms. Kroes said that until last month, documents that the company submitted to the European competition regulator “fell significantly short of what was required.”

The technical details about Windows that the commission seeks will, it says, help restore fair competition in the market for server operating systems. At present, servers using Microsoft’s system work better with personal computers running Windows than do servers made by companies like Sun Microsystems using rival systems.

Under European antitrust law, withholding the technical details amounts to an abuse of a dominant position, given that over 95 percent of the world’s P.C.’s run on Windows.

Ms. Kroes said that market share data in the so-called workgroup server market illustrated the problem. Between 2002 and 2005, Microsoft gained 12 percentage points in market share, while its rivals all lost ground, according to statistics compiled by the research company IDC.

“Microsoft dominates this market — none of its rivals have more than 10 percent market share,” Ms. Kroes said.

As long as the legal wrangling goes on, that situation continues, lawyers said. “Microsoft continues to profit from every new day of noncompliance,” said Thomas Vinje, a Brussels-based partner in the Clifford Chance law firm and the lead counsel for the European Committee for Interoperable Systems, a trade group. “The commission has now made clear that open-ended noncompliance with the order will not be tolerated.”

At a hearing before the commission in March, Mr. Smith said that he finally understood what documentation the commission was seeking. Since then, Microsoft has been working closely with the commission and with Neil Barrett, the trustee responsible for monitoring Microsoft’s compliance with the antitrust order.

The company has now filed several batches of documents which, at first glance, appear to be in order, Ms. Kroes said.

A turning point came on June 20, when Mr. Barrett gave preliminary approval to the information the company submitted in April and May, covering half the technical issues that the commission was seeking information about, Ms. Kroes said.

“Now we must check if the specifications are correct,” Ms. Kroes said of the documents. “We’ll know in a couple of months.” The company said it would submit the rest of the requested information on July 18. If it all checks out, Ms. Kroes said, “we’ll be back to normal.”